The debate surrounding the anticipated budget surplus.
February 19, 1998
in this forum:
Is the Clinton administration using smoke and mirrors to create this so called surplus? If there is a budget surplus, wouldn't it be beneficial to pay down the national debt? What are the key assumptions in the projection of a Federal budget surplus? If a surplus does exist, wouldn't it make sense to give it back to the American people in the form of a tax cut ? Wouldn't it make sense to use this surplus to bolster the long-term solvency of the Social Security system?
February 2, 1998
Budget Director Franklin Raines and Senator Pete Domenici (R-NM) discuss the possible budget surplus.
January 9, 1998
Exploring the possiblities and plausibility of a budget surplus.
August 5, 1997
President Clinton signs a budget deal that will balance the books by 2002.
Experts analyze the budget deal.
Sen. Pete Domenici and Budget Director Franklin Raines discuss the budget agreement .
Browse the NewsHour's coverage of the budget, the White House and the Political Wrap index
Office of Management and Budget
U.S. Senate and House of Representatives
The Urban Institute
Citizens for a Sound Economy
Eric Berger of Tucson, AZ, asks: If a surplus does exist, wouldn't it make sense to give it back to the American people in the form of a tax cut? Would not this ensure our future economic growth, and in turn, increase government revenues?
Mr. James Miller, counselor at the Citizens for Sound Economy, responds:
I agree with the premise of your question, as indicated in my answer to question #2 above. Not only do we need to cut tax rates, we need to scrap the tax code and start all over with a flatter, fairer tax.
To begin the process of tax cuts and tax reform, we need to abandon the government-centric language that politicians and many in the media love to spout. For example, whenever someone proposes a tax cut, those within the Washington Beltway typically will ask, "How much will it cost?" But the money is not the government's, it belongs to the people. (When someone proposes a tax increase, how often do you hear, "How will the American people pay for this tax increase?")
So, if there truly is a surplus, we ought to ask why the government should demand more from taxpayers than the reasonable costs of running the government. The logical implication: cut taxes.
Finally, like the New York Times, I am persuaded that a cut in taxes is likely to restrain the growth of government. But unlike the Times, I count this as a good outcome, not a bad one. According to the Times (February 3, 1998): "Taxes cut today would be very difficult to restore tomorrow, putting undue pressure on Congress to cut spending programs instead." Please throw me in that briar patch!
Dr. Rudolph Penner, the Arjay and Frances Miller Chair in Public Policy at the Urban Institute, responds:
It is true that if taxes are cut in a way that increases the growth rate permanently, revenues eventually will be higher than they would have been in the absence of the tax cut. The problem is that most economic research indicates that "eventually" is a long time away. In the interim, deficits are larger than they would be otherwise, the national debt continues to grow, and the interest on that additional debt will absorb a large part, if not more than the eventual increase in revenues.
A more important practical problem is that the Congress has great difficulty designing tax changes that are conducive to growth. For example, the child care credit enacted last year, whatever its other merits, probably will have a negative impact on economic growth. It certainly does not provide any added incentive to save or to work and there is considerable evidence that a lump sum addition to after-tax income reduces work effort in a household, particularly the work effort of the secondary earner and teenagers. Last year's capital gains tax cut should have raised growth slightly, but the Congress made it so extraordinarily complicated that its effectiveness is clearly hampered.
For the above reasons, I favor saving the surplus for a few years. We know that will make the interest burden on the debt lower than it would be otherwise and that will leave us better prepared to finance the retirement of the baby boomers.